- Areas of headline rental growth in certain prime retail parks
- 'New wave' of retailers pushing for out-of-town space
- Occupational market subdued but stable
- Development activity set to increase in 2013
- Low investment volumes in Q1/Q2, more realistic valuations needed to ease flow of
Although leasing activity in the out-of-town retail occupational market is down compared to
the peak in 2007, the market continues to show some resilience according to Cushman &
Wakefield's latest 'Out-of-town Retail Snapshot' report.
In locations where supply and demand are evenly matched, there are pockets of rental growth
but generally three common themes are apparent in the occupational market; increasing trading
polarization: an increased need for retailers to address operational inefficiencies: and tenant
incentive packages with more flexible lease terms.
Prime open A1 non-food sector
This sector is performing strongest, with lower vacancy rates than the bulky goods
sector. Many of the higher rented schemes continue to generate good levels of trading turnover,
underpinned by good accessibility, a quality shopping environment and diverse tenant mix. These
locations are still favoured by retailers, but only when they can occupy space on an
economically sustainable basis.
Bulky goods sector
The bulky goods sector is facing more challenges, with pressure on retailers to address
the impact of past operational requirements - primarily excessive floorspace, reduced consumer
spending and a shift in shopping patterns, which has translated into higher online purchases.
Dixons Retail represents a good example of this, with its consolidation programme to create
'2-in-1' trading format stores, incorporating both PC World and Currys fascias, proving
extremely successful in addressing what can be considered as operational inefficiencies.
There is no quick solution for the market where over-supply exists. However, the
rationalisation programmes being implemented by some retailers, alongside receiverships and
CVAs, continue to provide excellent expansion opportunities for others. For example, B&Q
and Wickes acquired 42 former Focus stores in 2011, allowing them to widen their geographic
reach into some smaller towns and absorb market share in a sector of only three national DIY
operators. Encouragingly, those retailers who continue to target new store openings, including
both Dunelm and DFS, are seeking strong trading locations and economic rents as their core
requirements behind the acquisitions.
'New wave' of retailers
While the 'old guard' retailers have to wrestle with the issues of maturity, we are
witnessing a new wave of operators pushing for space. B&M and Family Bargains are actively
securing larger units, and single price point retailers such as Poundland and
Poundworld/Discount UK were also very active in 2011 - albeit their expansions have slowed
slightly during the first and second quarter of this year. Hobbycraft continues to expand with
plans for 80 new stores in the next five years. In terms of newcomers, Metro Bank has opened
its first retail park unit at Borehamwood Shopping Park with further stores set to open in the
M25, while Nike is also expected to enter the retail park sector later this year.
Outlook for the rest of 2012:
Despite a mixed outlook for the rest of 2012, the occupier market is expected to remain
stable if subdued. Nationally, demand for prime will be sustained, but some secondary schemes
will come under pressure.
Martin Mahmuti, Analyst in the European Research Group at Cushman & Wakefield, said,
"Notwithstanding challenging trading conditions, occupier activity is not expected to
stagnate. Retailers remain particularly cost-sensitive, and the shift to cheaper out-of-town
locations is not likely to end in the short term. A number of retailers are looking to trial
new formats and expand their multi-channel provision. The success of 'click and collect' is
expected to draw new retailers to the out-of-town market."
Construction of new out-of-town stock is expected to continue at its present low levels into
2013, with new activity likely to be focused on capturing unsatisfied demand from the ?Home?
concepts of the likes of John Lewis and Next. The current planning regime appears slanted
towards assisting regeneration, and in areas of under-supply there is a strong argument to
support the development of retail warehouse space.
The investment market picture remains mixed as whilst selective demand appears likely to
remain for secure income opportunities and dominant schemes in under-supplied locations, moving
forward clear transactional evidence will be key in generating increased deals flow. Non-food
transaction volumes to late May this year stood at approximately £270m, comprising 14 deals.
When compared with almost £1.1bn in 54 deals transacted in the first five months of 2011, it
reflects a turnover decline of approximately 76% year-on-year.
It is anticipated that the low level of transaction volumes will continue in the short term
as valuations realign, but expectations are that there will be little near term evidence of
prime pricing. Assets perceived to be further up the risk curve appear set to remain the focus
of more opportunistic investors; consequently, the gap between prime and secondary is expected
to widen slightly as the year progresses.